What is a potential consequence of an embezzlement scheme on financial ratios?

The identification of a decrease in financial ratios as a consequence of an embezzlement scheme is grounded in the fundamental alterations that embezzlement induces in a company's financial statements. Embezzlement typically leads to understated assets or overstated liabilities, as funds are misappropriated from the organization. This misappropriation can lead to reduced net income, which directly impacts profitability ratios as earnings diminish. The misrepresentation of financial condition can also affect liquidity ratios such as the current ratio, since the loss of funds reduces the available current assets compared to current liabilities.

As a result, the overall effect of embezzlement tends to skew financial ratios downward, reflecting weakened financial performance and potentially impairing investors' and creditors' perceptions of the company's health. Consequently, identifying a decrease in these ratios is a logical outcome when embezzlement occurs, making this option a sound choice.